The Dollar only made small gains on Friday as risk appetite returned. Economic data was mixed with consumer spending figures unchanged and average income up. The Michigan consumer confidence index came in slightly lower than expected at 73.6% rather than the forecast 73.7% with respondents anticipating a slower pace of recovery. The Dollar closed up against the Pound at 1.4455 and up against the Euro at 1.2272.

   A mixture of positive news and an improvement in money market lending rates have helped the Euro stabilize. On Friday a Fitch downgrade of Spanish debt to a AA+ rating however stimulated a small sell off back down to the 1.22s as investors fears about European sovereign debt returned, but this was balanced by positive Economic data, showing increase’s across the board. The German import price index increased by 2% rather than the 1.5% expected, and Italian PPI was also positive showing an increase from 0.5% to 1.2% MoM. Banking crisis fears eased as Libor snapped a 13 day rise dropping to 5.3625%. During Friday’s session the Euro fell to 111.75 against the Yen and 1.2272 against the Dollar.

   The Pound reversed gains on Friday as it sank with the Euro on Spanish debt concerns and the coalition government once again looked vulnerable as the Secretary to the Treasury David Laws resigned over an expenses scandal. The Gfk consumer confidence survey for March showed a drop from -16 to -18 when a rise to -15 was expected. The Pound closed at 131.61 to the Yen and down to 1.4455 to the Dollar.

   Poor unemployment figures and a lower CPI raised deflationary fears in Japan. National core CPI dropped -1.5% YoY in April while Tokyo core CPI dropped -1.6% YoY, both suggesting deflation is still a deep problem in Japan. The Yen itself did not change much on Friday as its value seems more dictated by its speculative safe haven status than anything else. The Yen closed marginally down against the Dollar at 91.05 and up slightly against the Euro at 111.75.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst